Wednesday 18 April 2012

Indonesia Readies Ban on Unprocessed Metal-Ore Shipments



By Yoga Rusmana - Apr 18, 2012
Bloomberg
Indonesia, Southeast Asia’s largest economy, will proceed with a plan to ban exports of unprocessed metal ores including bauxite from next month, while confirming an exemption for producers that intend to treat output locally.

“If miners don’t have the business plan they will be prohibited from exporting ores,” Thamrin Sihite, director general of minerals and coal at the Energy and Mineral Resources Ministry, told reporters in Jakarta. The ministry has received proposals from 17 companies to build processing plants, allowing them to continue ore shipments subject to a new tax, he said.

The largest nickel-ore and bauxite supplier to China announced the prohibition in February, two years ahead of schedule, to increase the value of shipments. The new rules apply to holders of so-called Mining Business Licenses issued after 2009, and companies with a so-called Contract of Work, including Phoenix-based Freeport-McMoRan Copper & Gold Inc. (FCX) and Newmont Mining Corp. (NEM), will be allowed to ship ores until 2014.

The new tax put forward by the energy ministry would be 15 percent, and that proposal is being discussed by the finance ministry, Sihite said late yesterday. “We will allow exports for some companies, but they will have to sign a letter of commitment that they will stop all shipments by 2014,” he said.

The Indonesia Mining Association estimated last month that the ban will cut nickel-ore and bauxite exports as much as by 75 percent this year. Indonesia shipped 33 million metric tons of nickel ore and 40 million tons of bauxite last year, according to Syahrir Abubakar, the group’s executive director.

‘Consider the Implications’

“The government must consider the implications of the policy, including how to manage ore stockpiles if miners are banned from exporting,” Syahrir said by phone today. The actual extent of the declines in shipments of bauxite and nickel ore would depend on how many producers were exempted, he said.

The new trade curbs apply to exports of 14 metals including iron ore, manganese, gold, silver and copper, and bring them in line with the rules that have applied to tin since 2002, with only refined exports permitted. Indonesia is the world’s biggest shipper of tin, used in packaging and as solder.

As long ago as 2007, Mari Pangestu, Indonesia’s then- minister of trade, said that the government intended to promote local refining to increase the value of commodity shipments such as metal ores and palm oil. Changes would be gradual and not disrupt output, Pangestu told Bloomberg at that time. Indonesia is the world’s largest producer of palm oil, ahead of Malaysia.

Smelter Capacity

“The government wants to encourage miners to team up with, or invest in local smelter capacity,” Nick Trevethan, Singapore-based senior commodities strategist at Australia & New Zealand Banking Group Ltd., said by e-mail yesterday.

Nickel-ore production and exports from the Philippines are set to increase this year as the nation benefits from Indonesia’s planned trade curbs, according to the Mines and Geosciences Bureau. Stock in Manila-listed Nickel Asia Corp. (NIKL), the biggest Philippine nickel-ore producer, has rallied 50 percent this year, touching an all-time high.

The new rules in Indonesia may not be implemented in full, according to an April 12 report from Standard & Poor’s Rating Services. The ban on shipments of unprocessed ores “will likely be delayed or toned down,” it said, predicting higher taxes.

Freeport-McMoRan runs the Grasberg mine in Papua Province, and Newmont Mining operates the Batu Hijau copper mine on Sumbawa Island. Grasberg contains the world’s largest recoverable copper reserves, according to Freeport.

The ban on shipments for Mining Business License holders will be effective three months after the ministerial decree was issued on Feb. 6, Dede Suhendra, director of minerals management at the energy ministry, said in a text message today.

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